ICHOR HOLDINGS, LTD. — Q1 2024 Form 10-Q
Reporting period: The 13 weeks ended March 29, 2024; comparable period was the 13 weeks ended March 31, 2023. Ichor designs and manufactures fluid-delivery subsystems and components primarily for semiconductor capital equipment.
Financial performance
| Metric | Q1 2024 | Q1 2023 |
|---|---|---|
| Net sales | $201.4 million | $225.9 million |
| Gross profit / margin | $23.0 million / 11.4% | $33.2 million / 14.7% |
| Operating income (loss) / margin | $(3.7) million / (1.9)% | $4.8 million / 2.1% |
| Net income (loss) | $(9.0) million | $(0.005) million |
| Diluted EPS | $(0.30) | $0.00 |
| Operating cash flow | $4.8 million | $(10.9) million |
| Capital expenditures | $4.5 million | $6.8 million |
Non-GAAP gross margin was 12.2% versus 15.5%; non-GAAP operating margin was 1.2% versus 6.1%. Non-GAAP net loss was $2.7 million, or $0.09 per diluted share, compared with non-GAAP net income of $11.1 million, or $0.38 per diluted share. These are company-defined measures, not substitutes for GAAP results.
At March 29, cash and cash equivalents were $102.1 million, current assets $421.2 million, and current liabilities $101.2 million. Inventories were $240.7 million. Debt principal was $133.1 million, including $7.5 million due within 12 months; the revolver was undrawn, with $250 million available. The term loan and revolving facility mature October 29, 2026. Outstanding debt bore a 7.72% interest rate at quarter-end.
Changes and drivers
- Sales fell 10.8% year over year, primarily reflecting weaker customer demand amid reduced semiconductor capital-equipment spending.
- Gross margin declined 330 basis points. Management cited lower factory utilization, unfavorable product mix, and excess and obsolete inventory expense, which reduced margin by 110 basis points.
- GAAP operating results shifted to a loss. R&D rose 24.5% to $5.4 million, partly due to new-product development; SG&A declined 4.7% to $19.2 million, and intangible amortization fell 45.9% to $2.1 million.
- Net interest expense declined to $4.1 million from $4.6 million as average borrowings fell, partly offset by a higher average borrowing rate of 7.61% versus 6.10%.
- Cash increased $22.2 million from year-end. The March public offering generated $136.7 million net proceeds from 3.8 million shares; the company repaid $115.0 million on the revolver and $1.9 million on the term loan. Shares outstanding increased during the quarter.
Outlook, risks, and other items
The filing provides no specific quantified revenue or earnings guidance. Management said near-term conditions remain challenging but expects semiconductor and related demand to return to growth over the longer term, supported by demand for semiconductor capacity and advanced processes. Cost-reduction initiatives continued through Q1; severance charges were $0.9 million, compared with $1.3 million a year earlier.
Key risks cited include semiconductor-industry cyclicality and customer spending, reliance on a small number of OEM customers and limited suppliers, customer negotiating leverage, competition and product-development execution, supply-chain disruption, macroeconomic and geopolitical uncertainty, export controls, and variable-rate borrowing costs. A hypothetical 100-basis-point rate change would alter quarterly interest expense by $0.3 million, or $1.3 million annualized. Management believes cash, available credit, and operating cash flow can fund obligations for at least the next 12 months and beyond.
Q1 income-tax expense was $0.9 million despite a pretax loss; the effective tax rate was (11.3)%. The filing attributes this mainly to foreign taxable income and a valuation allowance against U.S. deferred tax assets. No material pending or threatened litigation was reported. Management concluded disclosure controls were effective as of quarter-end and reported no material change in internal control over financial reporting.
Investor verification priorities
- Track order demand, customer spending, and whether revenue stabilizes or recovers after the industry downturn.
- Monitor gross-margin recovery, factory utilization, product mix, and inventory levels and obsolescence reserves.
- Assess cash generation excluding the one-time equity offering, and confirm working-capital trends and capital-spending needs.
- Review debt repayments, variable-rate exposure, available revolver capacity, and the effect of interest rates on earnings.
- Evaluate the offering’s share-count dilution and the sustainability of earnings, including the effects of tax valuation allowances and non-GAAP adjustments.